OFS companies’ one-year stock price compared to industry ETFs
Schlumberger’s (SLB) stock is down 16% in the past one year as of July 6, 2017. Schlumberger has underperformed the VanEck Vectors Oil Services ETF (OIH), which has generated -15% returns in the past year. OIH tracks an index of 25 oilfield equipment and services (or OFS) companies. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has generated -4% returns during the same period. Schlumberger has also underperformed the SPDR S&P 500 ETF (SPY), which has produced 15% returns since July 6, 2016. The Dow Jones Industrial Average (DJIA-INDEX) rose 19% in the past one year.
Halliburton (HAL) outperformed OIH with 1% returns in the past year as of July 6. National Oilwell Varco’s (NOV) one-year returns have been 2%, while Weatherford International (WFT) generated -34% one-year returns. Learn how Wall Street analysts expect OFS companies to perform in 2Q17 in Market Realist’s Wall Street’s 2Q17 Picks: Best and Worst Oilfield Services Stocks.
Crude oil price and rig count
The West Texas Intermediate (or WTI) crude oil price is now at a similar level to where it was a year ago. Despite relatively steady crude oil prices, the surge in the US rig count has been undeterred. Compared to a year ago, the US rig count is now 114% higher as of July 7. A higher US rig count typically results in higher energy production, which can result in better revenues and margin prospects for OFS companies. However, higher production tends to lower crude oil prices, which can offset some of the benefits of higher production.
Year-to-date stock price comparison
Crude oil prices have been choppy in 2017 after a 45% recovery in 2016. In 2017 so far, the WTI crude oil price has fallen 16%. Schlumberger’s (SLB) stock price has fallen 22% year-to-date following the drop in crude oil prices. Halliburton (HAL), SLB’s lower market cap peer, has fallen 22% year-to-date. Read more on Halliburton in Market Realist’s Will Halliburton’s Fundamentals Improve in 2Q17? The VanEck Vectors Oil Services ETF (OIH) has fallen 27% year-to-date. National Oilwell Varco (NOV), HAL’s smaller market cap peer, has fallen 14% since the beginning of this year. Weatherford International (WFT) has fallen 28% during the same period.
Next, we’ll discuss what these OFS companies’ historical valuation multiples suggest versus the current multiple.